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Cooperation among local governments to deliver public services : a “structural” bivariate response model with fixed effects and endogenous covariate

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  • Edoardo di Porto

    ()
    (EQUIPPE (Universités de Lille) and Sapienza (Universita di Roma)Dipartimento MEMOTEF, Via del Castro Laurenziano 9, 00161 Roma, Italy)

  • Vincent Merlin

    ()
    (CREM CNRS and University of Caen Basse Normandie, 19 rue Bloch 14032 Caen, France)

  • Sonia Paty

    ()
    (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)

Abstract

Cooperation among local governments has been encouraged to enable the aggregation of resources and improved public sector efficiency. However, if cooperation through the joint delivery of local public services is likely to be welfare enhancing for the agglomeration, but will lead to losses for one of the parties, it is unlikely that the losing municipality will cooperate. Using a unique panel dataset of 30,000 French municipalities for 1995-2003, we estimate the relationship between cooperation decision and the fiscal revenues raised to provide local public goods. We employ a new econometric strategy based on Lee (1978), developing a non linear method controlling for fixed effect, endogenous covariates and cluster standard error. We find evidence that a positive difference between the expected fiscal revenues of a cooperating locality and the actual revenues realized by an isolated locality significantly increases the probability of joining an inter-municipal community.

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Bibliographic Info

Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 1304.

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Date of creation: 2013
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Handle: RePEc:gat:wpaper:1304

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Keywords: inter-municipal cooperation; fiscal revenues; bivariate response variable; panel data; endogeneity;

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